Veris Residential, Inc.

The call over to Mahbub Nia, Ferris Residential's Chief Executive Officer. Mahbub.

Good morning, and welcome to our quarter 2023 earnings call. I'm joined today by our CFO, Amanda Lombard. We had a positive start to 2023, underpinned by continued strength in the performance of our multifamily portfolio and momentum in our strategic transformation. We closed on the sale of Harborside 123, despite an extremely challenging transaction market, particularly for office. Closing the Harborside 123 transaction represents a significant milestone in the company's continued evolution and concludes over $2 billion of non-strategic asset sales since the beginning of 2021, which, combined with a successful development and stabilization of four new multifamily buildings and one acquisition during this period, have transformed Veris Residential from primarily an office company to a pure-play multifamily company, with 99% of our NOI being derived from car-safe multifamily properties. As of March 31st, our 7,681-unit multifamily portfolio, which now includes House 25 and same-store 6,691-unit multifamily portfolios, were 95.9% and 96% occupied, respectively. Following a seasonally slower start to the year, we've seen demand accelerating ahead of what we anticipate will be another busy leasing season. The same-store portfolio achieved a blended net rental growth rate of almost 11% during the first quarter, Moderating is expected, but remaining extremely robust. In particular, our Jersey City important period assets, which represent approximately 72% of the portfolio, continue to outperform with a 13% blended net rental growth rate achieved in the first quarter. Despite the strong rental growth, Class A rents in these sub-markets remain approximately 40% below average comparable Manhattan rents. The broader North Jersey region has become one of the best performing multifamily markets in the country over the last year. driven by robust demand combined with extremely limited new supply, which only accounts for 0.3% of total inventory at the beginning of the year. This sustained revenue growth, coupled with stable controllable expenses compared to the first quarter of 2022, contributed to a 16% growth in same-store NOIs. Since the beginning of the year, we've closed on over $500 million of non-strategic asset sales, releasing approximately $380 million of net proceeds and providing substantial liquidity as we enter the final phase of the company's transformation. In February, we completed our previously announced sale of the Port Imperial Hotel for $97 million, marking our exit from the hotel segment. As previously referenced, earlier this month, we completed the sale of Harbourside 123 for $420 million. Navigating these complex dispositions amidst ongoing market volatility is a true testament to the strength and unwavering commitment of the various residential teams. I'm extremely proud of their hard work and grateful for their tireless efforts in support of our strategic initiatives. Following the sale of Harvestside 123, the company exercised its right to call Rockpoint's preferred interest in the multifamily residential portfolio on April 5th. The following day, as anticipated, Rockpoint exercised its right to defer this purchase for one year. At this time, the company anticipates that such purchase is likely to close late in the second quarter of 2024. Turning to ESG, we continue to execute strategic initiatives at both the corporate and property level, consistent with our ongoing efforts to be a more responsible, sustainable, and inclusive multi-family company. We look forward to sharing this progress in our 2022 ESG report, which will be released later this quarter. As we enter the final phase of our transformation, our focus will be on concluding the few remaining non-strategic asset sales, repaying RockPoint's preferred equity interest, and continuing to work with our board to maximize and unlock the company's intrinsic value on behalf of our shareholders. With that, I'm going to hand it over to Amanda, who will update you on our financial performance during the quarter.

Thanks, Mahbub. For the first quarter of 2023, net loss available to common shareholders was $0.27 per fully diluted share, versus 13 cents per fully diluted share in the first quarter of last year. Before we get into discussing additional details for the quarter, I want to call out that our income statement shows significant variances from the income statement presented in the fourth quarter. This is the result of an accounting reclassification. Harborside 1, 2, and 3, 101 Hudson, and 111 River, as well as the hotels, have been reclassified into discontinued operations for all periods presented. This reclassification was triggered by the sale of Harborside 1, 2, and 3, and further simplified their financial statements. As Maba highlighted, with multifamily now making up 99% of NOI, the reclassification of our historical and current financial statements allows for a greater ease of comparability. In particular, I'd like to call out the year-over-year growth in first quarter gap revenue of $19 million, or nearly 50% from just a year ago. This increase has been driven primarily by organic factors such as portfolio rental growth, the stabilization of House 25, and other newly developed assets, as well as the acquisition of the James. This substantial growth is a testament to our operating platform, the quality of our assets, and the strength and dedication of our team. Core FFO was $0.15 for the first quarter as compared to $0.05 in the fourth quarter. Core FFO was up quarter over quarter due to a variety of factors, including improved multifamily NOI, a reduction in G&A, and an increase in other income. We also have benefited from a reduction in interest expense due to lower average balances on the credit facility, plus the benefit of the caps on House 25 and 145 Broad Street. In February, we announced that House 25 reached stabilized occupancy. And while we currently expect limited concessions being offered for renewals, concessions granted in the lease-up will continue to burn off through straight-line rent during the remainder of 2023. Same-store NOI was up almost 16% as compared to the first quarter of last year due to increased in-place rents across the portfolio, while sequential same-store NOI increased by 8%, driven by higher rents and lower real estate taxes as a result of the one-time catch-up we realized in the fourth quarter. Turning to cost. Controllable and non-controllable property expenses improved, in large part due to seasonal adjustments, as well as, to a lesser extent, the timing of certain activities and our continued efforts to optimize operations. As for our general and administrative costs, after adjustments for one-time severance and certain stock compensation-related adjustments, core G&A was $9.2 million for the first quarter. We anticipate full-year cost savings through 2023 and beyond as we work to further enhance operations, and optimize our cost structure through our ongoing initiative. On to our balance sheet. The $360 million received from the sale of Harborside I, II, and III is held on deposit in anticipation of the repayment of Rock Point's preferred interest, earning interest at a rate of approximately 4.5%. This will be reported as interest and other investment income on the income statement in the second quarter. We ended the quarter with net debt to EBITDA of 10.3 times, down from 18.8 times in Q1 of last year, representing an improvement of approximately 8.5 turns, or 45%, demonstrating a dramatic improvement in our leverage profile during a relatively short period of time. Our debt-to-undepreciated assets ratio also remained stable during the quarter. While we anticipate continued variability in earnings as we seek to conclude our transformation, we remain confident that the downward trend in leverage is sustainable. As we look towards the future and our upcoming maturities, we have only one outstanding maturity this year, which is the $59 million mortgage on one of our stabilized Boston properties. Our debt portfolio remains well positioned, with 97% of our total debt fixed and or hedged with a weighted average maturity of 3.8 years and a weighted average interest rate of 4.4%. Harborside 1, 2, and 3 contributed approximately $7 million of core FFO in the first quarter. However, due to a number of one-time items, run rate is closer to $6 million a quarter. We've previously noted that one of the benefits of the transition from an office-focused portfolio to a pure-play multifamily portfolio is a smoother, more predictable income profile with less onerous CapEx requirement, in particular given our young vintage, average age of six years, high-quality portfolio. You can see this starting to take shape through our Q1 results in which AFFO, which has been historically lower than Core FFO for us, converged with Core FFO at $14.9 million. This compares to the first quarter of 2022, where AFFO was almost $9 million lower than Core FFO. We would like to reaffirm our same-store NOI guidance range of 4% to 6%. While our first quarter results were exceptional and exceeded this range, We are only one-third of the way into the year, and we believe it is prudent to maintain guidance at the current range given the broader economic uncertainty. We will continue to monitor our portfolio and consider revising guidance should we believe it is warranted. In conclusion, we are pleased to report another positive quarter in which we saw continued strength in rental growth, further optimization of our property and corporate level expense structure, and a substantial year-over-year reduction in our net debt to EBITDA. With that, we are ready to open the line for questions.